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By Dayan Yehonatan D. Hool
As the economy is showing signs of improvement, the Federal Reserve is slowly beginning to increase interest rates. The Fed has held rates near zero since December 2008, and any increase would lead the dollar to strengthen against other currencies. While this move is subject to debate among economists, in this article we will discuss the Halacha regarding loans that are given in one currency and paid back in another.
The Prohibition of Ribbit – Interest
The Torah[1] forbids paying interest on a loan. So, it is forbidden to borrow $100 and repay $120 or to borrow a pound of flour and return a pound and a half. When the interest was agreed on at the outset, the prohibition is on a Torah level. However, if there was no initial commitment on behalf of the borrower to add interest, the prohibition to pay interest is rabbinic.
Hachamim also forbid several other practices that would otherwise have been permitted from the Torah, in order to ensure that one does not come to transgress the more severe Torah prohibitions involving Ribbit.
For example, if the item returned is different from the item lent, such as one who provides goods or services, and charges extra if the payment is not made immediately but at a later date – although there is no loan taking place in the classic sense – nevertheless, this extra charge would constitute a rabbinic prohibition.
Another practice that is rabbinically proscribed is lending “Se’ah B’Se’ah” – lending a fixed measure of grain (or other goods – anything that is not money), even if it is agreed between the parties that the exact same amount of grain will be returned by the borrower. For example, one may not lend a pound of wheat and be paid back a pound of wheat.
The reason for this is because of the possibility of inflation or deflation. Halacha regards the currency as being stable and everything else as fluctuating. For instance, if one borrows $100, one pays back $100, even if there was deflation in the interim and the $100 has more buying power than it did at the time of the loan. If, however one borrows anything other than currency, e.g. food, goods etc. there is a concern that in the interim there may be inflation, and the goods will increase in value, so that if one repaid the same amount of goods one would actually be paying interest. Therefore, Hazal generally prohibited lending anything other than currency, for fear that the value may increase before the repayment of the loan.
Exceptions to “Se’ah B’Se’ah”
However, there are several exceptions to this rule. Firstly, if the borrower has at least a small amount of the borrowed item, it is permitted to borrow more. For example, it would be permitted to borrow a pound of wheat if the borrower has at least some wheat of his own at home. The reason for this leniency is that we regard the pound of wheat that he is borrowing as if it is being swapped for the one that he already owns, and thus even if it goes up in value, it’s as though the lender’s own pound that has increased in value. When the borrower then repays the loan, he is merely giving the lender that which has already been his from the time of the loan. [Although, technically, the pound of wheat in the borrower’s home doesn’t really become the lender’s automatically, Hachamim introduce this legal “fiction,” to be lenient in this rabbinic form of Ribbit].
Extending this idea further, Chazal said that even if the borrower has only a very small amount of the commodity being borrowed, he can borrow “against it” much more of the same commodity. Again, since the whole prohibition is miderabanan, they allowed one to consider as if each part of the amount being borrowed is swapped for the small amount that the borrower already possesses[2].
Extending it even further, Hachamim say that even if the borrower does not possess any of the commodity that he is borrowing, nonetheless, if it is widely available on the market, he may borrow from his friend, because the availability of the commodity alone is sufficient to regard the situation as if the borrower already has some of it in his possession.
The Rashba[3] adds an important provision: the commodity must not only be available for purchase in the area, but the price must be stable too[4]. The Ba’al HaMa’or[5] however, seems to consider the fact that the commodity is widely available as sufficient to permit the loan, even if the price is not stable.
It seems that these two opinions have slightly differing approaches in understanding the leniency of the availability of the commodity. The Ba’al HaMa’or understands that as long as the commodity is widely available, we can consider the borrower to have already availed himself of the repayment, and thus the commodity can be considered to be already in the possession of the lender. Thus, even if it increases in value, no interest has been paid. Although Maran in Shulhan Aruch[6] requires the price to be stable for this leniency to apply, that is not an essential requirement, and is only meant to be used as an indication; if the price has stabilized that indicates that the particular produce in question is widely available in the marketplace.
The Rashba, however, seems to hold that the fact that the commodity is widely available does not suffice. If the price is not stable, there is a concern that by the time the borrowers goes out to purchase the commodity, the price will increase.
Foreign Currency
The consensus of opinion among the Poskim is that foreign currency that is not readily usable in the country where the loan is taking place is considered as goods rather than currency[7]. Some claim in the name of HaRav Elyashiv זצ”ל that dollars may at times be regarded as local currency in Eretz Yisrael since many significant transactions such as real estate dealings are quoted in dollars. However, since the weakening of the dollar some years ago, the market has moved towards shekels, and even real estate is now priced in shekels, so this view would no longer apply.
Accordingly, lending dollars in Eretz Yisrael, would be problematic from a Halachic point of view, unless the borrower had at least one dollar in his possession, as explained earlier. This minimum of at least one dollar would need to be held by him in cash, rather than in a bank account, but need not be held on his person, and could be kept elsewhere.
Although, according to the Ba’al HaMa’or, the fact that dollars are widely available for “purchase” in Eretz Yisrael would presumably suffice to permit lending dollars, if we follow the Rashba’s line of reasoning, the reality that the dollar-to-shekel exchange rate is constantly fluctuating would mean that if the borrower did not own at least one dollar, it would be forbidden to lend dollars in Eretz Yisrael [this can also be an issue when lending US dollars for Canadian dollars and vice versa].[8]
Sources:
[1] Shemot, 22:24; Vayikra, 25:36; Devarim, 23:20
[2] Rashi (Bava Metzia 75), Tur (Y.D. 162), c.f. Rashba (ibid. 63)
[3] Cited by the Bet Yosef
[4] The Bet Yosef (Y.D. 162) seems to be of the same view, as he considers copper coins to be a commodity, rather than currency, and prohibits lending them unless the borrower has at least one copper coin of his own (as described above) – although presumably copper coins were widely available. Evidently in this view availability is not sufficient to permit the loan, and the price must be stable too.
[5] End of Eizehu Neshech
[6] Y.D. 162:3
[7] See Bet Yosef (ibid.) citing the Rashb”a; Hazon Ish (Y. D. 72:9). However, the Netivot Shalom (165:35-36) quotes HaRav Shlomo Zalman Auerbach זצ”ל as holding that even foreign currency is essentially to be regarded as currency everywhere in the world, and not as goods, because all currencies nowadays have no intrinsic value as the coins of old did.
[8] C.f. Brit Yehuda (Ikare Dinim 13:9)